Electronic B2B marketplaces with different ownership structures

Electronic B2B marketplaces with different ownership structures

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Article ID: iaor20082570
Country: United States
Volume: 53
Issue: 6
Start Page Number: 952
End Page Number: 961
Publication Date: Jun 2007
Journal: Management Science
Authors: , ,
Abstract:

This paper analyzes electronic marketplaces with different ownership structures: biased marketplaces and neutral marketplaces. Biased marketplaces can be either buyer-owned or supplier-owned, whereas neutral marketplaces are owned by independent third parties. We develop a single-period model, with fulfilled expectations equilibrium. The buyers experience positive network effects that are a function of the number of suppliers and the suppliers receive similar positive network effects depending on the number of buyers. We develop a general model with atomistic buyers and suppliers. We find that biased marketplaces set prices to induce greater participation (demand) from both buyers and suppliers compared to a neutral marketplace. This counterintuitive result can be understood in the context of the positive cross-network effects experienced by buyers and suppliers and the added benefit to the owner of a biased marketplace from participating in the marketplace. Biased marketplaces also provide greater social welfare compared to neutral marketplaces.

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